Nuverra Announces Third-Quarter and Year-to-Date 2016 Results

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Revenue:

Non-rental revenue

$             32,143

$             71,000

$           107,538

$           263,540

Rental revenue

3,298

5,528

8,856

24,527

Total revenue

35,441

76,528

116,394

288,067

Costs and expenses:

Direct operating expenses

32,122

62,482

101,022

222,055

General and administrative expenses

6,323

8,705

27,979

31,102

Depreciation and amortization

15,019

16,687

46,070

52,465

Impairment of long-lived assets

7,788

-

10,452

-

Impairment of goodwill

-

104,721

-

104,721

Other, net

-

2

-

1,114

Total costs and expenses

61,252

192,597

185,523

411,457

Operating loss

(25,811)

(116,069)

(69,129)

(123,390)

Interest expense, net

(14,656)

(12,097)

(40,674)

(37,137)

Other income, net

2,095

22

5,024

743

Loss on extinguishment of debt

-

-

(674)

(1,011)

Loss from continuing operations before income taxes

(38,372)

(128,144)

(105,453)

(160,795)

Income tax (expense) benefit

(24)

31

(852)

40

Loss from continuing operations

(38,396)

(128,113)

(106,305)

(160,755)

Gain (loss) from discontinued operations, net of income taxes

-

350

(1,235)

(818)

Net loss attributable to common shareholders

$           (38,396)

$         (127,763)

$         (107,540)

$         (161,573)

Net loss per common share attributable to common shareholders:

Basic and diluted loss from continuing operations

$              (0.30)

$              (4.61)

$              (1.41)

$              (5.82)

Basic and diluted income (loss) from discontinued operations

-

0.01

(0.02)

(0.03)

Net loss per basic and diluted common share

$              (0.30)

$              (4.60)

$              (1.43)

$              (5.85)

Weighted average shares outstanding used in computing net loss per basic and diluted common share

129,669

27,807

75,291

27,634

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands)

(Unaudited)

September 30,

December 31,

2016

2015

Assets

(Note 1)

Cash and cash equivalents

$                 587

$             39,309

Restricted cash

1,087

4,250

Accounts receivable, net 

22,188

42,188

Inventories

2,580

2,985

Prepaid expenses and other receivables

3,468

3,377

Other current assets

958

2,372

Assets held for sale

582

-

Total current assets

31,450

94,481

Property, plant and equipment, net 

340,797

406,188

Equity investments

573

3,750

Intangibles, net

14,905

16,867

Other assets

573

1,333

Total assets

$           388,298

$           522,619

Liabilities and Shareholders' Deficit

Accounts payable

$              4,206

$              6,907

Accrued liabilities

18,281

29,843

Current contingent consideration

-

8,628

Current portion of long-term debt

51,315

499,709

Derivative warrant liability

4,426

-

Total current liabilities

78,228

545,087

Deferred income taxes

340

270

Long-term debt

405,461

11,758

Long-term contingent consideration

8,500

-

Other long-term liabilities

3,738

3,775

Total liabilities

496,267

560,890

Commitments and contingencies

Shareholders' deficit:

Common stock

152

30

Additional paid-in capital

1,407,650

1,369,921

Treasury stock

(19,809)

(19,800)

Accumulated deficit

(1,495,962)

(1,388,422)

Total shareholders' deficit

(107,969)

(38,271)

Total liabilities and shareholders' deficit

$           388,298

$           522,619

Note 1: The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)

(Unaudited)

Nine Months Ended

September 30,

2016

2015

Cash flows from operating activities:

Net loss

$         (107,540)

$         (161,573)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Income from discontinued operations, net of income taxes

-

(906)

Loss on the sale of TFI

1,235

1,724

Depreciation and amortization of intangible assets

46,070

52,465

Amortization of debt issuance costs, net

4,329

3,638

Accrued interest added to debt principal

20,240

-

Stock-based compensation

908

1,858

Impairment of long-lived assets

10,452

-

Impairment of goodwill

-

104,721

Gain on sale of UGSI

(1,747)

-

Loss (gain) on disposal of property, plant and equipment 

3,298

(1,198)

Bad debt expense

(516)

(695)

Change in fair value of derivative warrant liability

(2,574)

-

Loss on extinguishment of debt

674

1,011

Deferred income taxes

70

21

Other, net

5

364

Changes in operating assets and liabilities:

Accounts receivable

20,516

58,985

Prepaid expenses and other receivables

(227)

(1,294)

Accounts payable and accrued liabilities

(14,379)

(4,805)

Other assets and liabilities, net

(136)

1,342

Net cash (used in) provided by operating activities from continuing operations

(19,322)

55,658

Net cash used in operating activities from discontinued operations

-

(708)

Net cash (used in) provided by operating activities

(19,322)

54,950

Cash flows from investing activities:

Proceeds from the sale of TFI

-

78,897

Proceeds from the sale of property, plant and equipment

9,954

12,339

Purchases of property, plant and equipment

(2,613)

(16,564)

Proceeds from the sale of UGSI

5,032

-

Change in restricted cash

3,163

(4,250)

Net cash provided by investing activities from continuing operations

15,536

70,422

Net cash used in investing activities from discontinued operations

-

(181)

Net cash provided by investing activities

15,536

70,241

Cash flows from financing activities:

Proceeds from revolving credit facility 

118,533

-

Payments on revolving credit facility

(176,428)

(81,647)

Proceeds from term loan

24,000

-

Payments for deferred financing costs

(1,084)

-

Issuance of stock

5,000

-

Payments on vehicle financing and other financing activities

(4,957)

(9,468)

Net cash used in financing activities of continuing operations

(34,936)

(91,115)

Net cash used in financing activities of discontinued operations

-

(105)

Net cash used in financing activities

(34,936)

(91,220)

Net (decrease) increase in cash and cash equivalents

(38,722)

33,971

Cash and cash equivalents - beginning of period

39,309

15,416

Cash and cash equivalents - end of period

587

49,387

Less: cash and cash equivalents of discontinued operations - end of period

-

-

Cash and cash equivalents of continuing operations - end of period

$                 587

$             49,387

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS

 (In thousands)

(Unaudited)

This press release contains non-GAAP financial measures as defined by the rules and regulations of the United States Securities and Exchange Commission. A non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations or balance sheets of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures are included in the attached financial tables.
 
These non-GAAP financial measures are provided because management of the Company uses these financial measures in maintaining and evaluating the Company's ongoing financial results and trends. Management uses this non-GAAP information as an indicator of business results, and evaluates overall performance with respect to such indicators. Management believes that excluding items such as acquisition expenses, amortization of intangible assets, stock-based compensation, asset impairments, restructuring charges, expenses related to litigation and resolution of lawsuits, and other charges, which may or may not be non-recurring, among other items that are inconsistent in amount and frequency (as with acquisition expenses), or determined pursuant to complex formulas that incorporate factors, such as market volatility, that are beyond our control (as with stock-based compensation), for purposes of calculating these non-GAAP financial measures facilitates a more meaningful evaluation of the Company's current operating performance and comparisons to the past and future operating performance. The Company believes that providing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share,  in addition to related GAAP financial measures, provides investors with greater transparency to the information used by the Company's management. These non-GAAP financial measures are not substitutes for measures of performance or liquidity calculated in accordance with GAAP and may not necessarily be indicative of the Company's liquidity or ability to fund cash needs. Not all companies calculate non-GAAP financial measures in the same manner, and our presentation may not be comparable to the presentations of other companies.

Reconciliation of Loss from Continuing Operations to EBITDA, Adjusted EBITDA from Continuing Operations and Total Adjusted EBITDA:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Loss from continuing operations

$           (38,396)

$         (128,113)

$         (106,305)

$         (160,755)

Depreciation and amortization

15,019

16,687

46,070

52,465

Interest expense, net

14,656

12,097

40,674

37,137

Income tax expense (benefit)

24

(31)

852

(40)

EBITDA

(8,697)

(99,360)

(18,709)

(71,193)

Adjustments:

Transaction-related costs, including earnout adjustments, net

-

(13)

(117)

(145)

Stock-based compensation

252

342

908

1,858

Change in fair value of derivative warrant liability

(1,551)

-

(2,574)

-

Legal and environmental costs, net

3,387

134

13,504

538

Impairment of long-lived assets

7,788

-

10,452

-

Impairment of goodwill

-

104,721

-

104,721

Restructuring, exit and other costs

(266)

326

(379)

1,661

Loss on extinguishment of debt

-

-

674

1,011

Gain on sale of UGSI

(53)

-

(1,747)

-

Loss (gain) on disposal of assets

2,566

114

3,293

(1,198)

Adjusted EBITDA from continuing operations

3,426

6,264

5,305

37,253

Adjusted EBITDA from discontinued operations

-

-

-

1,197

Total Adjusted EBITDA

$              3,426

$              6,264

$              5,305

$             38,450

Reconciliation of Loss from Discontinued Operations to EBITDA from Discontinued Operations and Adjusted EBITDA from Discontinued Operations:

 Three Months Ended 

 Nine Months Ended 

September 30,

 September 30, 

2016

2015

2016

2015

Loss from discontinued operations

$                   -

$                 350

$             (1,235)

$               (818)

Income tax expense

-

-

-

265

EBITDA from discontinued operations

-

350

(1,235)

(553)

Adjustments:

Transaction-related costs

-

-

-

26

Loss on sale of TFI

-

(350)

1,235

1,724

Adjusted EBITDA from discontinued operations

$                   -

$                   -

$                   -

$              1,197

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of QTD Segment Performance to Adjusted EBITDA

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$                 19,166

$                   7,877

$                   8,398

$                        -

$                 35,441

Direct operating expenses

13,890

9,311

8,921

-

32,122

General and administrative expenses

1,211

346

455

4,311

6,323

Depreciation and amortization

7,554

3,281

4,121

63

15,019

Operating loss

(3,489)

(10,733)

(7,215)

(4,374)

(25,811)

Operating margin %

(18.2%)

(136.3%)

(85.9%)

NA

(72.8%)

Loss from continuing operations before income taxes

(3,618)

(10,384)

(7,265)

(17,105)

(38,372)

Loss from continuing operations

(3,618)

(10,384)

(7,311)

(17,083)

(38,396)

Depreciation and amortization

7,554

3,281

4,121

63

15,019

Interest expense, net

150

118

53

14,335

14,656

Income tax expense (benefit)

-

-

46

(22)

24

EBITDA

$                   4,086

$                  (6,985)

$                  (3,091)

$                  (2,707)

$                  (8,697)

Adjustments, net

(206)

7,094

4,746

489

12,123

Adjusted EBITDA from continuing operations

$                   3,880

$                      109

$                   1,655

$                  (2,218)

$                   3,426

Adjusted EBITDA margin %

20.2%

1.4%

19.7%

NA

9.7%

Three Months Ended September 30, 2015

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$                 41,325

$                 19,825

$                 15,378

$                        -

$                 76,528

Direct operating expenses

30,938

16,414

15,130

-

62,482

General and administrative expenses

1,823

791

703

5,388

8,705

Depreciation and amortization

8,553

4,041

3,985

108

16,687

Operating loss

(104,710)

(1,421)

(4,441)

(5,497)

(116,069)

Operating margin %

(253.4%)

(7.2%)

(28.9%)

NA

(151.7%)

Loss from continuing operations before income taxes

(104,811)

(1,569)

(4,474)

(17,290)

(128,144)

Loss from continuing operations

(104,811)

(1,563)

(4,470)

(17,269)

(128,113)

Depreciation and amortization

8,553

4,041

3,985

108

16,687

Interest expense, net

110

146

48

11,793

12,097

Income tax benefit

-

(6)

(4)

(21)

(31)

EBITDA

$                (96,148)

$                   2,618

$                    (441)

$                  (5,389)

$                (99,360)

Adjustments, net

104,590

(12)

1,181

(135)

105,624

Adjusted EBITDA from continuing operations

$                   8,442

$                   2,606

$                      740

$                  (5,524)

$                   6,264

Adjusted EBITDA margin %

20.4%

13.1%

4.8%

NA

8.2%

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of YTD Segment Performance to Adjusted EBITDA

Nine Months Ended September 30, 2016

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$                 63,023

$                 28,342

$                 25,029

$                        -

$                116,394

Direct operating expenses

49,680

29,005

22,337

-

101,022

General and administrative expenses

4,758

1,875

2,348

18,998

27,979

Depreciation and amortization

23,425

10,590

11,854

201

46,070

Operating loss

(14,840)

(21,153)

(13,937)

(19,199)

(69,129)

Operating margin %

(23.5%)

(74.6%)

(55.7%)

NA

(59.4%)

Loss from continuing operations before income taxes

(15,088)

(20,984)

(14,016)

(55,365)

(105,453)

Loss from continuing operations

(15,088)

(20,984)

(14,062)

(56,171)

(106,305)

Depreciation and amortization

23,425

10,590

11,854

201

46,070

Interest expense, net

354

368

139

39,813

40,674

Income tax expense

-

-

46

806

852

EBITDA

$                   8,691

$                (10,026)

$                  (2,023)

$                (15,351)

$                (18,709)

Adjustments, net

2,508

8,820

4,548

8,138

24,014

Adjusted EBITDA from continuing operations

$                 11,199

$                  (1,206)

$                   2,525

$                  (7,213)

$                   5,305

Adjusted EBITDA margin %

17.8%

(4.3%)

10.1%

NA

4.6%

Nine Months Ended September 30, 2015

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$                158,336

$                 74,549

$                 55,182

$                        -

$                288,067

Direct operating expenses

115,470

59,906

46,679

-

222,055

General and administrative expenses

5,201

3,716

4,000

18,185

31,102

Depreciation and amortization

26,091

12,028

13,828

518

52,465

Operating loss

(93,147)

(1,224)

(9,923)

(19,096)

(123,390)

Operating margin %

(58.8%)

(1.6%)

(18.0%)

NA

(42.8%)

Loss from continuing operations before income taxes

(92,909)

(1,756)

(10,037)

(56,093)

(160,795)

Loss from continuing operations

(92,909)

(1,756)

(10,037)

(56,053)

(160,755)

Depreciation and amortization

26,091

12,028

13,828

518

52,465

Interest expense, net

363

646

142

35,986

37,137

Income tax benefit

-

-

-

(40)

(40)

EBITDA

$                (66,455)

$                 10,918

$                   3,933

$                (19,589)

$                (71,193)

Adjustments, net

104,015

134

1,050

3,247

108,446

Adjusted EBITDA from continuing operations

$                 37,560

$                 11,052

$                   4,983

$                (16,342)

$                 37,253

Adjusted EBITDA margin %

23.7%

14.8%

9.0%

NA

12.9%

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

 NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Three Months Ended September 30, 2016

As Reported

Special Items

As Adjusted

Revenue

$             35,441

$                   -

$             35,441

Direct operating expenses

32,122

(4,394)

 [A] 

27,728

General and administrative expenses

6,323

(1,545)

 [B] 

4,778

Total costs and expenses

61,252

(13,727)

 [C] 

47,525

Operating loss

(25,811)

13,727

 [C] 

(12,084)

Loss from continuing operations

(38,396)

12,131

 [D] 

(26,265)

Basic and diluted loss from continuing operations

$               (0.30)

$               (0.20)

Loss from continuing operations

$           (38,396)

$           (26,265)

Depreciation and amortization

15,019

15,019

Interest expense, net

14,656

14,656

Income tax expense

24

16

EBITDA and Adjusted EBITDA from continuing operations

$             (8,697)

$              3,426

Description of 2016 Special Items:

 [A] 

Special items primarily includes the loss on sale of underutilized assets, offset by severance and environmental clean-up charges.

 [B] 

Primarily attributable to stock-based compensation, non-routine legal and professional fees offset by a settlement for the Rocky Mountain division.

 [C] 

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $2.1 million for assets classified as assets-held-for-sale in the Southern division and $5.7 million for assets determined to be impaired in the Northeast division.

 [D] 

Primarily includes the aforementioned adjustments along with a gain of $1.6 million associated with the change in fair value of the derivative warrant liability.  Additionally, our effective tax rate for the three months ended September 30, 2016 was 0.06% and has been applied to the special items accordingly.

Three Months Ended September 30, 2015

As Reported

Special Items

As Adjusted

Revenue

$             76,528

$                   -

$             76,528

Direct operating expenses

62,482

(846)

 [E] 

61,636

General and administrative expenses

8,705

(68)

 [F] 

8,637

Total costs and expenses

192,597

(105,637)

 [G] 

86,960

Operating loss

(116,069)

105,637

 [G] 

(10,432)

Loss from continuing operations

(128,113)

105,624

 [H] 

(22,489)

Basic and diluted loss from continuing operations

$               (4.61)

$               (0.81)

Loss from continuing operations

$         (128,113)

$           (22,489)

Depreciation and amortization

16,687

16,687

Interest expense, net

12,097

12,097

Income tax benefit

(31)

(31)

EBITDA and Adjusted EBITDA from continuing operations

$           (99,360)

$              6,264

Description of 2015 Special Items:

 [E] 

Special items include a gain on sale related to the disposal of certain transportation related assets.

 [F] 

Primarily attributable to stock-based compensation, non-routine litigation expenses, and a gain related to the sale of assets.

 [G] 

Primarily includes the aforementioned adjustments, and approximately $104.7 million associated with a goodwill impairment charge recorded for the Rocky Mountain division.

 [H] 

Primarily includes the aforementioned adjustments. Additionally, our effective tax rate for the three months ended September 30, 2015 was near zero percent and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Nine Months Ended September 30, 2016

As Reported

Special Items

As Adjusted

Revenue

$           116,394

$                   -

$           116,394

Direct operating expenses

101,022

(5,633)

[A] 

95,389

General and administrative expenses

27,979

(11,704)

[B] 

16,275

Total costs and expenses

185,523

(27,789)

[C] 

157,734

Operating loss

(69,129)

27,789

[C] 

(41,340)

Loss from continuing operations

(106,305)

24,208

[D] 

(82,097)

Basic and diluted loss from continuing operations

$               (1.41)

$               (1.09)

Loss from continuing operations

$         (106,305)

$           (82,097)

Depreciation and amortization

46,070

46,070

Interest expense, net

40,674

40,674

Income tax expense

852

658

EBITDA and Adjusted EBITDA from continuing operations

$           (18,709)

$              5,305

Description of 2016 Special Items:

 [A] 

Special items primarily includes the loss on sale of underutilized assets, offset by severance and environmental clean-up charges.

 [B] 

Primarily attributable to stock-based compensation and non-routine legal and professional fees incurred in connection with the execution of management's plan to restructure our indebtedness.

 [C] 

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $4.8 million for assets classified as assets-held-for-sale in the Northeast and Southern divisions and $5.7 million for assets determined to be impaired in the Northeast division.

 [D] 

Primarily includes the aforementioned adjustments along with a charge of $0.7 million in connection with the write-off of a portion of the unamortized deferred financing costs as a result of amendments to the ABL Facility, a gain of $2.6 million associated with the change in fair value of the derivative warrant liability, and a gain on the sale of Underground Solutions, Inc. of $1.7 million. Additionally, our effective tax rate for the nine months ended September 30, 2016 was 0.8% and has been applied to the special items accordingly.

Nine Months Ended September 30, 2015

As Reported

Special Items

As Adjusted

Revenue

$           288,067

$                   -

$           288,067

Direct operating expenses

222,055

469

 [E] 

222,524

General and administrative expenses

31,102

(2,214)

 [F] 

28,888

Total costs and expenses

411,457

(107,580)

 [G]